The prime focus of the Chancellor’s Spring Statement was ‘growth tomorrow’. With business confidence stubbornly low, the statement aimed to strike a positive tone, focusing on the improved OBR (Office for Budget Responsibility) forecasts for economic growth in 2026 and beyond.

However, expected growth in 2025 has been halved, from 2% to 1%. Much of this is based on factors outside the government’s control, but predicted by the OBR in its fiscal risks document issued in 2022:

• upward pressure on defence spending, and
• an increase in global trade restrictions.

Both of these factors have been exacerbated by the policies of the current US government, which is pursuing an uncertain agenda based on blanket tariffs and Russian appeasement.

It is currently unclear whether these tariffs will directly affect the UK. The OBR predicts a 0.6% hit to GDP in 2026-27 if the UK does become subject to US tariffs; a significant impact on economic growth.

However, the limited wiggle room the Chancellor has imposed through her tax pledges and fiscal rules have also had an impact. With the employer’s national insurance increase due to come in next month, business investment and hiring has taken a hit.

“The UK’s public finances continue to be fragile, with the economy flatlining, rising debt interest, significant cost pressures, underperforming public services and local government on life support,” said Alison Ring, ICAEW’s Director, Public Sector and Taxation. “Fortunately, though the OBR has brought down its forecasts for economic growth in 2025, prospects have improved for the rest of the forecast period.”

The government’s planning reforms are forecast to deliver a modest boost to economic outputs by 2029, though cumulative growth is expected to be half a percentage point lower than projected in October.

The fiscal picture for the UK has deteriorated since October, with higher debt interest payments and weaker receipts, which would take the debt balance from a £9.9bn surplus to a £4.1bn deficit in 2029/30.

The Chancellor announced welfare reforms and a drive to reduce day-to-day spending across the public sector, which would raise £14bn in 2029/30, offsetting the looming deficit. Borrowing is projected to be £3.5bn higher and debt 0.6% of GDP higher at the end of the decade than the OBR had forecast in October.

“As expected, the Chancellor was forced to cut back her spending plans to offset a worsening of the OBR’s forecasts for the public finances,” said Ring. “The positive news was that she has put in more upfront investment in the medium-term to transform public services, as we have called for.”

The headroom the Chancellor gave herself at the time of the Autumn Budget was not big enough to prevent lower growth and spending pressures from pushing her plans off course, Ring added. “While she will be hoping that the minimum wage uplift and planned public investment will boost the economy once the April tax rises are out of the way, she is likely to need to find other ways of building up the resilience of the public finances to avoid a similar situation occurring this time next year.”

Capital investment maintained

The £100bn capital investment announced in the Autumn Statement is still in place, with capital spending plans due in June. The Chancellor announced an additional £2bn for social and affordable housing in 2026/27, and a £625m package for skills in construction.

The Statement lacked any announcements on skills investment in other sectors, however, raising concerns that the government is pinning its hopes for growth on a limited number of industries.

Tackling tax debt

While there were no changes to taxes themselves announced in the Statement, the Chancellor announced measures designed to reduce tax debt.

This includes an increase in late payment penalties from April 2025, and for income tax self-assessment taxpayers once Making Tax Digital (MTD) for income tax is in place. Payments that are 16-30 days late will see interest increase to 3% of the amount owed on day 15. Beyond that date, taxpayers will be subject to an additional 3% interest on the amount owed on day 30, and most significantly, a daily penalty of 10%pa on the outstanding balance from day 31, up from 4% previously.

The government will invest £87m over the next five years in private debt collection agencies that work in partnership with HMRC. An additional 600 HMRC debt management staff will be hired at a cost of more than £144m over the next five years. Direct recovery of tax debts owed by individuals and companies will recommence, with automation options considered for lower value debts.

While it is necessary to recapture some of the lost revenue through unpaid tax liabilities, currently valued at £44bn, there is some concern that the sudden increase in penalties could impact on businesses who are struggling, particularly as late VAT payment penalties will increase around the same time that businesses are adapting to higher employer’s national insurance costs.

“It is important that businesses are made aware of the changes, especially as they apply from April 2025 for VAT, which is not far away.” said Frank Haskew, ICAEW’s Head of Taxation Strategy.

ICAEW’s Tax Faculty has covered the changes to late payment penalties and interest in detail, read more.

MTD income tax extended

MTD for income tax will extend to taxpayers with turnover of more than £20,000 from April 2028. Commercial software will also be required to submit a tax return under MTD, rather than an HMRC service.

Some very specific groups of taxpayers will be exempted from MTD or have their start date deferred, and taxpayers that elect for quarterly reporting will need to join MTD from 1 April rather than 6 April in the relevant year. HMRC will have powers to cancel or reset late submission penalty points and to cancel financial penalties. 

Caroline Miskin, Senior Technical Manager in ICAEW’s Tax Faculty, said that the 2028 extension gives little time to assess how well MTD for income tax is working. “It leaves almost no time to assess how that has gone before the requirements are extended to more taxpayers.”

The Tax Faculty has reported on this in full, read more.

Military spending

Following the Prime Minister’s pledge to increase defence spending to 2.5% of GDP from April 2027, the Chancellor announced a £2.2bn increase in the Ministry of Defence’s budget in 2025/26. This came with some welcome news for businesses within defence and defence adjacent sectors.

UK Defence Innovation, a new scheme to encourage rapid development and adoption of innovative military technologies, will be 'up and running' by July with a ringfenced budget of £400m. It will increase the proportion of the MoD’s equipment spend on novel technologies – at least 10% from 2026.

Procurement processes will also change to open up more opportunities for smaller companies within the sector. Procurement will be segmented, with associated timescale targets to help tailor processes to types of capability, supplier and risk involved. In practice, this means a shift from:

• six years to two years to contract for major platforms, such as tanks and aircraft;
• three years to one year to contract for upgrades to items, such as communications, sensors and weapons; and
• a three-month cycle for items, such as drones and digital software. 

No spring break for business

Responding to the Spring Statement, ICAEW’s CEO Alan Valance said that there’s no respite on the horizon for UK businesses with the downbeat economy and looming impacts of tax increases in April, though the capital investment plans were welcome.

“The Chancellor is right that the world has changed and that we as a country have to adapt. But much of the sluggish growth since October has been self-inflicted after the Budget damaged the conditions for growth, which means continued low productivity levels and stagnant living standards,” he said.

“The Chancellor has essentially boxed herself in against her fiscal rules, and with little room for manoeuvre it’s vital she does not cut off any of her remaining levers for growth, so it’s positive that she did not axe capital spending.”

He noted that the OBR forecasts have not taken into account the impact of the Employment Rights Bill. ICAEW members have said that this will likely reduce recruitment and responsible risk-taking, potentially further limiting economic growth. 

“It’s time for the Chancellor to sow the right seeds for the green shoots of growth to emerge,” he said. Members have indicated that investment in infrastructure is very important for enabling business growth, he added. “A greater emphasis on unlocking private investment will kickstart economic growth and ensure the UK becomes the fastest-growing economy in the G7.”